Understanding The Medicare Secondary Payer Act

For those of you who have had any contact with the Medicare Secondary Payer Act recently, you understand the ridiculousness of the title of this article. No matter the amount of time spent delving into the details in the Medicare Secondary Payer Act no one, not even Medicare itself, could possibly "understand" all of the requirements of the Act. So much so, that there are currently bills before the Senate and House of Representatives written to hopefully clarify some of these issues and make the process of resolving claims involving Medicare beneficiaries more efficient.

This article is an attempt to provide a cursory explanation of the requirements of the Act and the steps of the claim recovery process. These requirements continue to evolve, but hopefully you can walk away from this article with a basic "understanding" of the terms and issues that you may encounter when resolving a claim involving a Medicare beneficiary from the prospective of a third party personal injury claim.

If you are involved in a matter where the injured claimant is a beneficiary of Medicare you must be aware that pursuant to the requirements of 42 USC § 1395y(b)(2)(B)(ii), Medicare must be reimbursed for benefits it previously paid. The previous payments made by Medicare are referred to as "conditional payments" since they are made "conditionally" on Medicare being reimbursed. Medicare is considered a "secondary payer" (hence the title of the Act) because Medicare is only required to pay for a service after a "primary payer" has satisfied its obligations. However, in reality Medicare usually pays for the services before the primary payer does and then seeks reimbursement of these payments.

The resolution of any case (through settlement, judgment or award) involving a Medicare beneficiary automatically creates Medicare's right to reimbursement. There is no notice requirement that Medicare notify any party of its reimbursement right. You must always remember that Medicare's right to reimbursement is not a lien and repayment is required when another party, insurance carrier or self-insured entity "has or had a responsibility to make payment with respect to such item or service." (42 USC § 1395y(b)(2)(B)(ii).)

While monitoring how the application of the Act unfolds across the United States, Franco Signor, LLC (www.francosignor.com/blog), on the forefront of Medicare compliance issues, recently reported on an interesting dispute regarding this issue raised in the U.S. District Court in New York that could potentially lead to a change in the nature of this reimbursement right. Citing the Sixth Circuit Court of Appeal's decision in Hadden v. United States (2011) 661 F.3d 298, the plaintiffs removed from their claim any amount for past medical damages thereby eliminating (as plaintiffs argued) Medicare's right to be reimbursed. While this dispute is beyond the scope of this article, the District Court dismissed this case for a lack of jurisdiction and the substance of this dispute remains unresolved. For now you should always assume that Medicare has an automatic right to reimbursement and past special damages should always be included in any settlement for general damages. We will wait to see if the United States Supreme Court provides any direction in this regard.

The potential penalty for ignoring Medicare's reimbursement right is that Medicare may pursue a direct action and recover double the amount of benefits paid. Medicare has a "right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment." (42 CFR § 411.24(g).) If Medicare is not paid within 60-days of Medicare's final demand then Medicare may pursue a direct action and seek recovery of double the amount of benefits paid. When a beneficiary receives a settlement judgment award or other payment Medicare should be repaid before the funds are disbursed. The requirement to reimburse Medicare on behalf of a third-party defendant only accrues if the beneficiary fails to pay Medicare's final demand within 60-days. Defendants do not have the affirmative duty to make direct payment to Medicare unless the beneficiary fails to reimburse Medicare. The statute of limitations for recovery by Medicare is six years, which begins on the date of the settlement or the date that Medicare learns of the settlement.

Reimbursement is required when a defendant or its insurance company "is, or should be, aware that Medicare has made a conditional payment." (42 CFR § 411.24(h).) Ultimately, Medicare has stated that when a claimant is 65-years old or older, an insurer "has reason to know" of Medicare's interest and is then required to determine Medicare's right to reimbursement, if any. Therefore, it is important for you to know how a person qualifies so you can watch for these factors and advise your clients where there appears to be a "reason to know" of Medicare's interest. Generally, a person qualifies for Medicare if they are over the age of 65, have received Social Security Benefits for two years and are transferred to Medicare, have end-stage renal disease or have Lou Gehrig's Disease (ALS). You should always keep an eye out for these qualification factors when evaluating a new claim.

The Medicare Secondary Payer Recovery Contractor ("MSPRC") is the entity that attempts to recover secondary payments made by Medicare. As discussed above, the Medicare Secondary Payer Act provides the necessary authority to the MSPRC to identify and recover these payments. When a new claim comes into existence the Medicare beneficiary must report it to Medicare's Coordinator of Benefits Contractor. This information will ultimately be given to the MSPRC to initiate the necessary recovery efforts. The MSPRC will issue a rights and responsibility's letter to the beneficiary and any attorney if the required proof of representation was submitted. The MSPRC will then identify the Medicare benefits paid related to the claim and will issue a conditional payment letter. At that time the beneficiary may challenge claims that are not related to the claim that have been incorrectly included in the conditional payment letter. Once the final settlement is reached or a judgment is obtained, the MSPRC will then identify final payment amount, calculate the amount owed and issue a demand letter once the settlement information is provided. It is important to note that the final demand letter will not be issued until the case is resolved, except in certain cases under a new "Self-Calculated Final Conditional Payment Amount" option as discussed below. As most of you know, this requirement creates serious issues with entering into and finalizing settlements because the ultimate reimbursement amount that Medicare will seek is unknown at the time the settlement is reached.

If a settlement or judgment already occurred when the conditional payment letter is issued, the MSPRC will issue a notice that provides the conditional payment information as well as the requirement to respond within 30-days if any items identified are not related to the claim. If a response is not received within 30-days, the final demand letter will automatically be issued requesting repayment of all conditional payments set forth in the conditional payment letter. Obviously it is important that these conditional payment letters be thoroughly reviewed. The MSPRC currently uses a software program to identify all trauma related to the ICD-9 Codes initially provided by the beneficiary from the date of loss to the date of the settlement or judgment. The trauma identified may not necessarily be related to the claim. In this situation, the beneficiary will be required to prove unrelatedness, which may require evidence from a doctor.

The following is brief discussion of other "hot button" issues related to the Medicare Secondary Payer Act:

Social Security Numbers

In regards to the release of Social Security Numbers by Medicare beneficiaries, Medicare has made it clear that the Health Insurance Claim Number (HICN) is the number that is needed to process any reporting. (See, CMS Town Hall Teleconference, October 28, 2010.) If a claimant is not being cooperative and does not want to provide his or her Health Insurance Claim Number or Social Security Number to verify he or she is not a Medicare beneficiary, a defense attorney or insurance company can provide the claimant with copies of the CMS alerts, dated August 24, 2009 and April 6, 2010, which discuss the collection of Health Insurance Claim Numbers and Social Security Numbers. It is important to note that Medicare does not require the collection of Social Security Numbers, Medicare requires the reporting of Health Insurance Claim Numbers. As discussed below, this is one of the issues that will hopefully be clarified by the bills currently before Congress.

Private Cause of Action

When settling a claim with a Medicare beneficiary it is also important to note that the beneficiaries have a private cause of action pursuant to 42 USC § 1395y(b)(3)(A), which gives the beneficiary the right to file a lawsuit against the primary payer to recover conditional payments. If a primary payer fails to promptly pay a claim it is "responsible" for when Medicare "actually" made payments then the primary payer is responsible for double the amount of benefits paid as discussed above. A waiver of the private cause of action should be incorporated into all releases when a claim with the Medicare beneficiary is settled. Theoretically such a waiver of the private cause of action could eliminate a potential counter claim by the beneficiary for double damages if he or she is later pursued by Medicare in a collection action for failing to reimburse Medicare for some reason.

Medicare Set-aside Arrangements

In regards to the Medicare set-aside arrangements, there is currently no formal review done by CMS in liability cases like there are in workers' compensation cases. (See, Sally Stalcup's, Region 6, MSP Regional Coordinator, Medicare Subrogation 2007 PowerPoint Presentation.) However, under the Medicare Secondary Payer Act if funds are obtained in a settlement for the beneficiary's future medical services, these funds must be used to pay for the future medical services. If this does not occur then future benefits may be terminated by Medicare. The Medicare Secondary Payer Act sets forth the requirement that Medicare's interest must be considered in liability cases, but there are no regulations as to when such an arrangement should be made in a liability case. If the beneficiary has completely recovered and no future medical expenses will be incurred then a Medicare set-aside arrangement is not required. A beneficiary cannot waive their right to future Medicare benefits to avoid the need of making arrangements for a set-aside. Ultimately, a beneficiary should always be advised of the requirements for a Medicare set-aside and the potential termination of future Medicare benefits for any injury if a set-aside is not established.

Comparative Fault

The Medicare Secondary Payer Manual establishes that "the only situation in which Medicare recognizes allocations of liability payments to non-medical losses when payment is based on a court order on the merits of the case. If the court or other adjudicator of the merits specifically designate amounts that are for payment of pain and suffering or other amounts not related to medical services, Medicare will accept the court's designation. Medicare does not recover from portions of court awards that are designated as payment for losses other than medical services." (Section 50.4.4: Designation in Settlements.) Medicare will not make any reduction for comparative fault. If a beneficiary has considerable comparative fault for an injury causing liability accident, Medicare has a waiver process whereby Medicare could potentially reduce the amount it is seeking in reimbursement. More information about the waiver process can be found on the MSPRC website at www.msprc.info.

Collateral Source Rule

Medicare payments should not be considered a "collateral source" under California's Collateral Source Rule. Recently in the unpublished portion of the Fifth District Court of Appeal's decision in Sanchez v. Strickland (No. F060582), the Court held that the decision in Howell v. Hamilton (2011) 52 Cal.4th 541 applies to Medicare. Therefore, attorneys should be prepared to argue the application of the Howell decision and the reduction of any medical damages awarded to reflect the amounts actually paid by Medicare.

The New "Self-Calculated Final Conditional Payment Amount" Option

CMS recently announced that it will be "implementing an option that will allow certain Medicare beneficiaries to obtain Medicare's final conditional payment amount prior to settlement." (See, the MSPRC website at www.msprc.info.) Allegedly this new option will be available in February 2012. This will only apply to certain settlements of $25,000 or less where the beneficiary is done treating. Under this option, the beneficiary will be able to calculate and submit the amount of Medicare's conditional payments, which the MSPRC will review and respond within 60-days with a final conditional payment amount.

More Changes To Come

To address some of the issues under the Mandatory Secondary Payer Act discussed above, S.B. 1718 and H.R. 1063, known as the Strengthening Medicare and Repaying Taxpayers Act of 2011 (the SMART Act -- seriously), are currently pending before the Senate and House of Representatives. Everyone involved in this process remains hopeful that the proposed changes will actually make it easier to resolve claims involving a Medicare beneficiary and "understand" the requirements of the Medicare Secondary Payer Act.

About the Author: Adam Stirrup is an attorney with McCormick Barstow LLP in Fresno, California. Honored as one of the "40 Under 40" by Business Street Online, his practice focuses on civil and commercial litigation.

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February 2012

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February 2012

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Indicate whether the following statements are true or false after reading the MCLE article on Understanding the Medicare Secondary Payer Act. Use the answer form provided to send the test, along with a $25 processing fee, to the Fresno County Bar Association. If you do not receive your certificate within four to six weeks, call (559) 264-2619.

1. Medicare will not pay until after the "primary payer" has paid for the service.
2. The resolution of any case involving a Medicare beneficiary automatically creates Medicare's right to reimbursement when the claim is settled or judgment is obtained by a Medicare beneficiary.
3. Medicare reimbursement rights only arise after a party gives notice that the claim has been resolved.
4. The potential penalty for ignoring Medicare's reimbursement right is that Medicare may pursue a direct action and recover double the amount of benefits paid.
5. The requirement to reimburse Medicare on behalf of a third-party defendant only accrues if the beneficiary fails to pay Medicare's final demand within 60-days.
6. When a beneficiary receives a settlement judgment award or other payment Medicare should be repaid before the funds are disbursed.
7. Attorneys can never be held responsible for reimbursement of benefits paid.
8. Defendants do not have the affirmative duty to make direct payment to Medicare unless the beneficiary fails to reimburse Medicare.
9. The statute of limitations for recovery by Medicare is six years, which begins on the date of the settlement or the date that Medicare learns of the settlement.
10. Reimbursement is required only when a defendant or its insurance company has actual knowledge that Medicare has made a conditional payment.
11. Medicare has stated that when a claimant is 65-years old or older, an insurer "has reason to know" of Medicare's interest and is then required to determine Medicare's right to reimbursement, if any.
12. Generally, a person qualifies for Medicare if they are over the age of 65, have received Social Security Benefits for two years and are transferred to Medicare, have end-stage renal disease or have Lou Gehrig's Disease (ALS).
13. When a new claim comes into existence the Medicare beneficiary must report it to Medicare's Coordinator of Benefits Contractor.
14. The MSPRC's final demand letter will only be issued before the case is resolved.
15. The ultimate reimbursement amount that Medicare will seek is always known at the time the settlement is reached.
16. If a settlement or judgment already occurred when the conditional payment letter is issued, the MSPRC will issue a notice that provides the conditional payment information as well as the requirement to respond within 30-days if any items identified are not related to the claim.
17. Medicare does not require the collection of Social Security Numbers, Medicare requires the reporting of Health Insurance Claim Numbers.
18. If a primary payer fails to promptly pay a claim it is "responsible" for when Medicare "actually" made payments then the primary payer is responsible for double the amount of benefits paid.
19. Under the Medicare Secondary Payer Act if funds are obtained in a settlement for the beneficiary's future medical services, these funds must be used to pay for the future medical services; if this does not occur then future benefits for services related to the claim may be terminated by Medicare.
20. Medicare always makes reductions for comparative fault.

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ANSWER FORM

February 2012

Understanding the Medicare Secondary Payer Act

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.